Single Stock Future - SSF

What is a Single Stock Future - SSF

A single stock futures contract is a standard futures contract with an individual stock as its underlying security. Each contract typically controls 100 shares of stock. Unlike owning the actual underlying shares, single stock futures do not convey voting rights or dividends.

BREAKING DOWN Single Stock Future - SSF

Single stock futures, as with all standard futures contracts, give the holder the obligation to take delivery of shares of the underlying stock at the contract's expiration date. The seller of the contract has the obligation to deliver those shares.

The futures markets offer the ability to use very high leverage relative to cash or spot markets. Traders use futures to hedge or speculate on the price movement of the underlying asset. For example, a producer of corn could use futures to lock in a certain price and reduce risk, or anybody could speculate on the price movement of corn by going long or short using futures.

Risks and Benefits

The major benefit of single stock futures is the ability to construct a strategy focused on one individual company's stock. Previously, a portfolio manager, for example, would hedge with index futures, such as those based on the Standard & Poor's 500 or Value Line Composite Index. Because the portfolio rarely matched the construction of the index, any hedged were not perfect. Correlations may have been strong but not always strong enough.

Another benefit was the differences in requirements for margin and short selling. Futures streamlined and reduced costs when compared to comparable options strategies and individual stock short selling, respectively.

The risks are similar to other futures contracts in that leverage could amplify losses, as well as gains. Also, trading volume on individual contracts was and remains far below that of index futures. That leads to larger bid / ask spreads and a less liquid marketplace.

Global Markets

While the reception for single stock futures was good as they launched in the U.S., activity faded over time. However, they continue to have global interest. Trading in Europe, which pre-dated that in the U.S., remains fairly active. In 2017, the Singapore Exchange (SGX) announced the launch of its own single stock futures. That the National Stock Exchange of India (NSE), which already traded single stock futures, asked the SGX to delay that launch suggests that the market is not large enough for all the players.

Related Terms

A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange.